Hi I have seen quite a few questions now where an asset is revalued at the start of the year, and the correct approach for charging the depreciation and gains on revaluation in that year's statement of profit or loss / financial position is to calculate the gain on revaluation as revalued figure at start of year less book value at start of year, then charge depreciation for the year based on the revalued figure. My question is what would we do if the asset was revalued at the end of the year? Say its book value on 1 January was £200k before revaluation, depreciation on this figure at 10% reducing balance would be £20k, so book value would be £180k on 31 December, but it was revalued on 31 December at £300k. How would we show the depreciation and gains on revaluation in the financial statements for the year ended 31 December? We would want to avoid any double counting of the depreciation and we would show the asset as £300k in the statement of financial position, an increase of £100k from the previous year-end, so the increase in retained earnings and revaluation reserve must total £100k. My initial thought was to have a depreciation of £20k, reducing profits and hence retained earnings by £20k, and a gain on revaluation of £120k, cancelling to £100k total. Either that or depreciation of £0k and a gain of £100k, which I think might make more sense as it seems a little odd to charge depreciation when the asset has increased in value. If someone could clarify the correct approach please that'd be great!
Hi Lauren Good question. I'd hope the approach might be indicated by the information given in the question - in particular the information given about depreciation on any revalued asset. I'd recommend a look at September 2016 Question 20 - that is a question with a factory revalued at the end of the year. In that case, the first of your two approaches is used, ie the factory is depreciated and this is charged in the P&L and then the revaluation is done after this. Hope this helps Lynn
